FICA is a payroll tax that funds Social Security and Medicare

FICA stands for Federal Insurance Contributions Act. It is a tax taken directly from your paycheck to fund two programs: Social Security (retirement, disability, and survivor benefits) and Medicare (health insurance for people 65 and older, and some younger people with disabilities). The amount withheld depends on your income, not on your age or circumstances.

FICA taxes are split between you and your employer. You pay 7.65% of your gross wages; your employer pays another 7.65%. If you are self-employed, you pay both portions yourself, which totals 15.3%. The money goes into federal trust funds, not into a personal account with your name on it.

Key Takeaways

  • FICA has two parts: Social Security tax (6.2%) and Medicare tax (1.45%), taken from every paycheck.
  • You build a record of FICA contributions over your working years, which determines whether you can receive Social Security or Medicare later.
  • The Social Security portion stops after you earn a certain amount in a year; Medicare tax does not have a wage cap.
  • FICA is mandatory for nearly all workers, including immigrants with work authorization, regardless of immigration status for some visa holders.

How FICA breaks down: Social Security and Medicare

The Social Security portion is 6.2% of your wages. This funds retirement benefits, disability benefits (SSDI), and survivor benefits for your family if you die. To receive Social Security retirement benefits, you generally need to have paid into the system for at least 10 years (40 quarters of coverage).

The Medicare portion is 1.45% of your wages. This funds hospital insurance (Part A), which covers inpatient hospital stays, skilled nursing, hospice, and some home health care. Medicare may be able to access begins at age 65 for most people, though some younger people with disabilities or end-stage renal disease can receive it.

There is also an additional Medicare tax of 0.9% on wages over a certain threshold ($200,000 for single filers, $250,000 for married filing jointly). This was added in 2013 and funds the same Medicare trust fund.

Why FICA matters for housing assistance

FICA contributions create a work record. Many housing programs check whether you have worked and paid taxes, or whether you receive Social Security or Medicare, as part of determining your circumstances. Some programs prioritize people receiving disability benefits (which requires a FICA work history) or seniors on Social Security.

Your FICA record also affects your income level for means-tested programs. If you are receiving Social Security benefits, that counts as income when you apply for rental assistance, housing vouchers, or other aid. The amount you receive depends on your lifetime FICA contributions and the age at which you claim benefits.

The wage cap for Social Security tax

Social Security tax applies only to the first $168,600 of your annual wages (this amount changes each year based on inflation). Once you earn more than that in a calendar year, no more Social Security tax is withheld from your paycheck for the rest of that year. Your employer stops deducting it automatically.

Medicare tax has no wage cap. You pay 1.45% on all your wages, no matter how much you earn. The additional 0.9% Medicare tax also applies to all wages above the threshold, with no upper limit.

FICA for self-employed people

If you are self-employed, you pay both the employee and employer portions of FICA, totaling 15.3%. You calculate this on your net self-employment income (your business income minus business expenses). You pay it when you file your federal income tax return, usually quarterly through estimated tax payments.

Self-employed people can deduct half of their FICA taxes as a business expense on their tax return. This reduces your taxable income but does not reduce the amount you owe in FICA itself. You still build the same Social Security and Medicare record as a regular employee.

Who pays FICA and who does not

Nearly all workers in the United States pay FICA, including citizens, permanent residents, and people on most work visas. Some groups are exempt: certain religious groups that have filed for exemption, some government employees hired before 1984, and railroad workers (who pay into a separate system). Students working on campus at their school may be exempt.

Undocumented immigrants who work and have a Social Security number or ITIN (Individual Taxpayer Identification Number) often pay FICA taxes. The money goes into the Social Security and Medicare trust funds, but they may not be able to claim benefits later depending on their immigration status and the specific program rules.

How to check your FICA record

You can view your FICA contributions and estimated benefits on your Social Security statement. Create an account at ssa.gov to see your earnings record, which shows how much you paid into Social Security each year. This record determines your future benefits.

If you spot errors in your earnings record, report them to Social Security as soon as possible. Mistakes can reduce your benefits. You will need your tax returns or W-2 forms as proof of the correct amount. Social Security has a limited window to correct errors, so do not delay.

Frequently Asked Questions

Does FICA come out before or after income tax?

FICA is withheld at the same time as federal income tax, both from your gross pay before you receive your paycheck. They are separate taxes going to different programs. FICA funds Social Security and Medicare; federal income tax funds general government operations.

What happens to FICA if I move to another country?

Your FICA contributions stay in your Social Security record. If you worked long enough to earn credits, you may still receive Social Security retirement or disability benefits even if you live abroad. Medicare benefits are generally available only in the United States and a few other countries. Check with Social Security before moving.

Can I get my FICA taxes back if I did not use Social Security or Medicare?

No. FICA is a mandatory tax, not a savings account. You cannot withdraw it or get a refund. The money funds current beneficiaries and builds your own benefit record for the future. If you die before claiming benefits, your family may receive survivor benefits based on your FICA record.

Do I pay FICA on tips?

Yes. Tips are considered wages and are subject to FICA tax. Your employer should withhold FICA on tips you report to them. If you receive cash tips you do not report, you are still legally required to pay FICA on them when you file your tax return.